Probate & Trust Law Section Conference Manual ... - Minnesota CLE

when ordinarily due. Use, for examples, an estate holding a large tract of land
that may not be sold except over a long period of time or stock of a closely held
corporation. The IRS is not in the business of holding and selling land or stock,
so an alternative election must be made to postpone the payment of the tax. Upon
a showing of undue hardship, IRC §§6161 and 6163 allow the IRS to extend the
time for the payment. Note however that the estate tax return must still be filed
timely and the election must be filed before the due date of the return.
i. Under IRC §6161, the estate tax may be deferred for a reasonable period
not to exceed 10 years. Allowance of the extension is in the absolute
discretion of the Commissioner. To meet the standard of “undue
hardship” one must generally show that the asset cannot be converted to
cash except by forced sale prices or that borrowing funds against assets is
not possible with reasonable lending terms. However, if a market exists
for the asset, it is not necessarily an undue hardship to take a loss on the
sale, especially if the loss could be deemed to be due to general economic
conditions.
ii. Remainder interests pose separate considerations. While this remainder
interest is includible in the decedent’s taxable estate, remainderpersons
can only reap the benefits and full enjoyment of the interest when the
preceding estate is terminated. It may be necessary for money to be raised
to pay the tax on the entire interest, yet the remainderpersons’ ability to
sell or borrow against the interest is hampered. Accordingly, IRC §6163
allows for an election to delay payment of the estate tax attributable to the
remainder interest until six months after the termination of the preceding
estate interest. This delay can be extended another two years upon a
showing of undue hardship.
iii. A bond may be required in exchange for granting the extension of the
payment. For IRC §6163 extensions, it is mandatory that the bond amount
be double the tax due.
iv. Additional considerations are made for closely held business stock under
IRC §6161. If the stock exceeds either 35% of decedent’s gross estate or
50% of the taxable estate, the Fiduciary may elect to pay the tax in two or
more (but not exceeding 10) equal installments. This election allows for a
stock redemption without dividend consequences to pay for estate taxes,
funeral and costs of administration. While the redemption amount cannot
exceed these actual costs, the proceeds do not actually need to go toward
payment of these expenses.
v. Of particular note is that interest will continue to be accrued until the
entire outstanding tax liability is paid. However, the IRS does give a
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